HC Deb 12 July 1982 vol 27 cc786-9

`(1) Where a person who—

  1. (a) has a major interest in any land, and
  2. (b) is liable, apart from this section, to give notice to the Board under sub-paragraph (1) of paragraph 36 of Schedule 8 to the Development Land Tax Act 1976 (hereinafter referred to as "the Act of 1976") of a project of material development of that land or part of it,
gives notice to the Board within the time limited by that sub-paragraph of his election under this section the provisions of the next succeeding subsection shall have effect.

(2) Notwithstanding anything in section 2 of the Act of 1976 (which provides in certain cases for land to be treated as if disposed of and re-acquired), where an election is made under subsection (1) above the start of the project referred to in that subsection shall not constitute a deemed disposal for the purpose of the Act of 1976 and accordingly development land tax shall not be chargeable by reference to that start.

(3) This section shall be construed as one with the Act of 1976 and shall apply to any notice of election given not earlier than the passing of this Act.'.—[Mr. Heddle.]

Brought up, and read the First time.

1.45 am
Mr. Heddle

I beg to move, That the clause be read a Second time.

In doing so, I should inform the House that I tabled the new clause on behalf of the House Builders Federation and, in accordance with the traditions of the House, I should declare an interest as a consultant to a firm of chartered surveyors which does not act in respect of residential development and, I suspect, derives little or no income from handling clients' cases which relate to development land tax. Nevertheless, it is appropriate that I should put that on the record.

It goes without saying that Britain's economic recovery depends largely upon the construction industry being given all the encouragement and stimulus possible, because from the flow of new homes comes the production of new carpets, new household equipment, new furniture and so on. It is appropriate to remind the House that in the previous two Budgets my right hon. and learned Friend has done much to iron out the inequities and the anomalies of the development land tax which the Government inherited from the previous Administration.

The House will recall that in the 1980 Budget my right hon. and learned Friend reduced taxation from the punitive level of 80 per cent. down to 60 per cent. and in last year's Budget he went one step further down the road to reality by introducing a principle of advance assessments whereby a builder, a developer or a contractor would at least know what his liability for development land tax would be before he started relevant development.

New clause 38 has been tabled as an attempt to persuade the Government of the genuinely unsatisfactory nature of the whole concept of deemed disposal, which underlies a whole sector of the cases in which development land tax is chargeable. It seeks to stop the Inland Revenue from treating the start of a project of material development on a site as though the owner had sold it at that time at market value. I remind the House that development land tax, assessed on deemed disposal basis, is the only basis of taxation in this country where the taxpayer is required in principle to pay tax before a profit has been made. Indeed, it is the only form of taxation upon which he is not able to offset any development loss against any development gain.

The change in last year's Finance Act which increased the allowance for house builders on base value—what is known as base value C—from 15 per cent. to 50 per cent. was generally welcomed by the construction industry as providing some much needed and overdue flexibility in the taxation system to ensure that house builders were not discouraged from developing sites generally nor developing inner city sites in particular. As my right hon. and learned Friend made clear in his 1981 Budget Statement, he wished to retain development land tax as a concept, as a method at least of taxing windfall speculative gains. I am sure that no one quarrels with that.

The recent modifications that my right hon. and learned Friend introduced will go some way to relieving the tax burden on house builders, whose land at least is treated, as are all other forms of trade and industry, as stock in trade. None the less, there are still a number of aspects of this form of taxation which adversely affect the construction industry.

The 50 per cent. uplift may still be insufficient to remove the doubt about the redevelopment of inner city sites. Furthermore, an increase in the allowance does little to alleviate the high administrative costs attached to the collection of development land tax, since the Revenue still needs to monitor each transaction and still needs to assess the liability on deemed disposal in order to assess the potential liability. This problem is particularly acute in respect of the deemed disposal mechanism, which was affected only indirectly by the 50 per cent. uplift.

There is no doubt that the increase in the allowance for the base value will reduce the large number of cases where the deemed disposal is disputed by the builder. However, the practical problems surrounding the deemed disposal in terms of valuation and the bureaucracy of the Act's administration are still of considerable concern to the construction industry. The bureaucratic nature of the tax in particular has been accentuated by the recent changes, since the revenue from deemed disposal has declined while administrative costs have remained very much the same.

Since the development land tax collected at the point of deemed disposal combines low revenue with high collection costs, there is a very strong case, in terms at least of reducing Government expenditure and at once encouraging the construction industry to develop, for eliminating the deemed disposal assessment at the start of a project and replacing it with the normal form of taxation on trading profits. The new clause is designed to achieve this end.

Mr. Wakeham

I appreciate my hon. Friend's deep knowledge of, and untiring efforts on behalf of, the construction industry. It is an important industry, and it is fortunate to have such an eloquent spokesman in the House. He presses me to agree to his clause, which seeks to avoid the development land tax charge that arises on the commencement of material development.

The charge on the commencement of material development is usually criticised because it is claimed that it imposes liability to DLT before a developer begins to receive any income from a development. We have done something to assist here. The tax on deemed disposals does not have to be paid immediately. The tax can be spread over eight years, and the Finance Act 1980 extended the period before the payment started from one year to two years. Effectively, this means that developers do not have to complete payment of the tax until nine years after the development has commenced. The facility to defer any payment of tax for two years and then to spread the balance over nine years goes some way to answer the charge that the tax on a deemed disposal has to be paid before the development can produce income.

As well as improving the instalment provisions, the Government have, since 1979, made various other important changes which have mitigated the effect of the charge on a deemed disposal, particularly for house builders. I appreciate that this is not going as far as my hon. Friend wishes to see. We shall, of course, keep matters under review. I regret having to disappoint my hon. Friend by being unable to go any further.

Mr. Heddle

I am grateful to my hon. Friend for his opening remarks. In view of his undertaking that he will keep the matter under review—

Mr. Campbell-Savours

That means a lot!

Mr. Heddle

When we return to office following the next general election I hope that we shall wipe away the last remaining anomaly that the Government inherited. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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